SECTION 9. WAIVING ACCOUNTABILITY FOR FAIRNESS IN FINANCIAL LIABILITY EDICTS
WHEREAS American enterprises commonly comprise thousands of individual employees;
WHEREAS knowing the capabilities, conduct, and character of such number of employees is an insurmountable task;
Therefore, the purpose of this section is to allow that chief executive officers be exempted from responsibility for material errors and weaknesses in their financial reporting, up to and including fraud, so long as said officers can claim that someone else was responsible for such shortcomings, misstatements, or frauds.
The culture of accountability has gone too far. The post-bubble legislation sponsored by Sens. Sarbanes and Oxley, usually known as Sarbox, was a well-meaning effort to safeguard American shareholders, but in many regards, it went too far. The knee-jerk legislation is now crippling American businesses, and one of the most insidious means by which it has degraded American enterprise is by placing undue responsibility on chief executives. Under current law, CEOs are responsible for the errors and malfeasance that occur under their watch, even if they have no idea that such things are occurring.
This accountability witch hunt began even before the passage of Sarbox, with the vilification of Enron's Ken Lay and Jeff Skilling. They were found guilty of a number of financial frauds even though the perpetrator of those frauds, CFO Andy Fastow, was right there in court admitting he had committed them. These schemes, documented in Enron's filings, were clever enough to hide the deceptive business practices from sophisticated investors for years, yet we expect to hold Lay and Skilling accountable for not detecting the frauds that Fastow took such great pains to hide?
Obviously, a CEO is no more responsible for the actions of a single, rogue employee than we are if our dog bites a neighbor, or our car's parking brake fails and it rolls down a hill into a grade school. Yet CEOs across the United States now waste countless hours trying to make sure that their accounting is accurate, their internal financial controls strong, and their filings clearly written. It costs millions of dollars -- costs that you can bet are passed directly on to American consumers. This is, in part, why no less an authority that Alan Greenspan has recommended that Sarbox be dumped.
But the most nefarious effects are not easily quantified. CEOs are busy individuals. It's their responsibility to see the big picture, dream the big dreams, and motivate their teams to achieve them. They don't have the time, and most don't have the expertise, to understand the accounting that underlies their financial reporting. By forcing them to delve too far into arcane bean-countery, by forcing them to guarantee that the numbers we get are accurate, we're pulling them away from the more important work. That's why The Motley Fool strongly supports Section 9 of the CEO Bill of Rights.
By freeing CEOs from accountability -- civil or financial -- for their companies' financial reporting, we free them to get back to building a better America for all of us. "CEOs, quite frankly, have a greater calling than number-crunching," Motley Fool co-founder Tom Gardner says. "You don't take a genius like Donald Trump and give him an adding machine. You want him out there at the restaurants, on the golf course, at the martini clubs, hustling for deals, signing contracts, and doing all those great things that makes a company like Trump Entertainment Resorts
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See Elgin Clay, our lobbyist in Washington, discuss Section 9 of H.R. 401.